2024 (3) TMI 848 - AT - Central Excise

Clandestine removal - it is alleged that respondents have shown excess manufacture in order to avail excess refund to the tune of Rs. 60 lakhs - burden of proof lies with the prosecution or not - suppression of actual consumption of LDO required for manufacturing unit quantity of final product - Extended period of limitation - HELD THAT - Revenue has missed out the fact that consumption of fuel depends on the atmospheric temperature, quality of raw material, condition of the furnace, initial temperature of furnace, per day frequency of the heats and the skill of the labourers. Revenue has not discussed this aspect at all. Moreover, the consumption of raw material i.e. copper scrap was not analyzed. Even the stock of fuel, raw material and final product was not taken at the time of audit so as to ascertain where the records maintained by the respondents were correct or otherwise. It is very surprising that the clearance of, allegedly excess produced, goods to different parties was not established; not even statement of a single buyer has been recorded; no verification at the transporter s to falsify the claim of the appellants that they have supplied the ingots manufactured by them to others. Without conducting any such investigation, department cannot establish claim of excess manufacture just by extrapolating the results of study of a single heat or a few heats. The charge levelled against the respondents is a serious charge. A charge of this nature cannot be summarily proved without conducting any commensurate investigation. It is now a settled principle that clandestine removal is a charge and has to be proved with all other concerned activities. The adjudicating authority has correctly analysed the facts of the case and has drawn legally sustainable conclusions - Appeal of Revenue dismissed.

Issues:
The issues involved in the judgment are the wrongful availment of Central Excise duty refund by showing excess production of copper ingots, the discrepancy in the ideal input-output ratio for scrap to ingots, the reliance on presumptions and assumptions in issuing the show cause notice, the burden of proof on the prosecution, the applicability of the principle of Revenue neutrality, the validity of the test check conducted to determine excess production, and the invocation of the extended period for investigation.

Excess Production of Copper Ingots:
The Revenue alleged that the appellants showed excess production of copper ingots to avail a refund of Central Excise duty, amounting to Rs. 60,83,064. The evidence presented by the Revenue was based on the consumption of Light Diesel Oil (LDO) per heat during a test run, where 1200 Ltrs. of LDO produced 7267 kg of copper ingots. However, the appellants consumed a total of 382500 Ltrs. of LDO in the year 2005-06, suggesting a potential production of 2316356 kg of copper ingots, whereas the appellants claimed to have produced 2500915 kg. The Tribunal noted that fuel consumption depends on various factors such as atmospheric temperature, raw material quality, furnace condition, and labor skill, which were not adequately considered by the Revenue.

Discrepancy in Input-Output Ratio:
The Authorized Representatives for the Revenue argued that the ideal input-output ratio for scrap to ingots was 1:0.9, while the respondent claimed it to be 1:0.9417. They contended that the test check conducted by the audit supported the lower ratio, indicating a discrepancy in the respondent's reporting of production. The Revenue emphasized the need for factual verification and criticized the Commissioner's reliance on presumptions and assumptions in dropping the show cause notice.

Burden of Proof and Legal Precedents:
The Authorized Representatives for the Revenue cited legal precedents such as D. Bhoormull and J.M. Aggarwal Tobacco Company Pvt. Ltd. to argue that the burden of proof lies with the prosecution and that the Department is not required to prove the case with mathematical precision. They highlighted the importance of independent evidence and factual verification in establishing illicit activities.

Principle of Revenue Neutrality and Extended Period:
The respondent's counsels argued that the principle of Revenue neutrality should apply in the case and disputed the invocation of the extended period for investigation. They emphasized that no discrepancy was found in the production records, and regular returns were being filed, indicating compliance with tax regulations.

Validity of Test Check and Investigation:
The respondent's counsels raised concerns about the validity of the test check conducted by the Revenue, stating that production capacity cannot be extrapolated from a single heat cycle. They emphasized that various factors influence fuel consumption and production levels, citing cases where production allegations based solely on fuel consumption were dismissed.

Conclusion:
After considering the arguments presented by both sides, the Tribunal dismissed the Revenue's appeal, stating that the charge of excess production and wrongful refund claim was not adequately supported by evidence. The Tribunal highlighted the lack of comprehensive investigation, failure to establish the clearance of allegedly excess produced goods, and the absence of buyer statements or transportation verification. The judgment emphasized the need for tangible evidence in cases of clandestine activities and concluded that the Revenue's arguments were not acceptable based on the facts presented.

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